Jesse Harlow - Michigan

MI Power Grid Phase IIAdvanced Planning Evaluator and All-Source Meeting

Jesse Harlow

Workgroup Instructions

1. This meeting is being recorded

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3. There will be opportunities for question/comments after each of the sections identified in the agenda

◦ Please type questions into the chat function or use the raise hand function during this time

◦ We will open it up to those on the phone after those using the chat function

4. The presentations for all the meetings are posted to the MI Power Grid webpage.

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Agenda Items

2:30 pm Introduction Jesse Harlow (MPSC)

2:45 pm Colorado Procurement Perspective Bob Bergman (CPUC)

3:05 pm Overview of Competitive Procurement Practices Ron Lehr

3:25 pm Independent Evaluator Perspective Dean Koujak (Guidehouse)

3:45 pm Questions for PresentersMichael O’Boyle (Energy

Innovations)

4:00 pm Discussion

4:20 pm Wrap-Up and Next Steps Jesse Harlow (MPSC)

4:30 pm Adjourn

Bob Bergman

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Competitive ProcurementIn Electric Resource Planning

Bob BergmanFebruary 2021

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Bids Received

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Approved Bids

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Bid ID Proje c t Na me

In-

Se rvic e

Ye a r

Contra c t

Te rm (yr)

W602 NextEra 2020 300 PPA 25 $ 10.68 -

W192 Tradewind 2020 500 $ 16.53 -

W301 Avangrid 2020 162 PPA 20 $ 14.16 -

W090 Leeward 2020 169 $ 18.00 -

S430 Owl Canyon PV 2022 75 $ 22.53 -

S085 Hartsel Solar 2022 72 PPA 25 $ 26.84 -

X647 Thunder Wolf 2022 200 400 PPA 25 $ 30.32 -

X427 Piccadilly Solar + Storage 2022 110 100 $ 30.33 -

X645 Neptune 2022 250 500 PPA 25 $ 31.35 -

G215 Manchief Gas Combustion Turbine 2022 301 $

G065 Valmont Gas Plant 2022 2022 82 $

Build- Own Transfer

PPA

Atlantic Existing Asset Sale $ - 1.50

Bidde r Na me

Na me pla te S tora ge

Ca pa c ity (MW) (MWh) S truc ture

(MW)

4 5 DAY

LEC

($ /MWh)

4 5 DAY

LCC

($ /kW- mo)

SW Generation Existing Asset Sale $ - 2.43

Coronal PPA $

Adani $

Coronal 50 $

NextEra 125 $

NextEra 100 $

CO_Green_162 $

Bronco Plains Wind $

Cheyenne Ridge $

Mountain Breeze $PPA

Low Cost Bids Enabled the

“Colorado Energy Plan”

• Retire 660 MW of coal-fired generation Cost Effectively.

Replaced with:

• 1,131 MW of wind generation

• 707 MW of solar generation

• 275 MW of large-scale battery storage.

• 383 MW of existing natural gas generation

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Retirement of Two Coal-Fired Generating Plants

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• Comanche units 1 & 2 (on right)

• 325/335 MW built 1973/1975

• Powder River Basin coal

• To be retired in 2022 (11 years early).

Resulting Emissions Reductions

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Colorado Resource Planning RulesElectric Resource Planning - ERP

Phase I

– Plan filed (every 4 years) February 1 year 1

– Phase I decision ~ Mid-November year 1

– Utility Issues RFPs ~ Mid December year 1

– Bids Received ~ Mid-March year 2

Phase II

– Utility and IE file reports ~ Mid-July year 2 (120 days after bids received)

– Parties file comments ~ End of August year 2 (45 days after report)

– Commission decision ~ Mid-October year 2 (45 days after comments)

– Utility negotiates contracts with winning bidders

▪ Expedited proceeding without discover, testimony or hearings. Utility evaluates bids with Independent Evaluator (IE) oversight. Commission approves specific resource portfolio with party input.

▪ Fully adjudicated proceeding with discovery, testimony and hearings. Sets all modeling scenarios, evaluation criteria, and resource needs.

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Keys to Successful Competitive Procurement

• All-Source Bidding

◦ All supply resources compete, limited carve-outs

◦ Firm bid target capacity

◦ IPP Bids, Utility rate-based proposals, Build-Transfer, must

compete on a level playing field

◦ Different term lengths must be addressed

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• Independent Evaluator

◦ Necessary to assure bidders of a fair evaluation process,

mandatory if utility ownership is included

◦ IE Vs. Commission in establishing modeling assumptions,

evaluation process, and bid selection criteria

◦ IE Vs. Utility bid administration, modeling

◦ Commission Vs. Utility contracting with the IE

◦ Full access to Utility information

◦ Utility Capture, transparency14


• Bidder Certainty

• Transparency

• Timeliness

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How to access Colorado rules and dockets:

• Google “Colorado PUC” for our homepage

• To access Xcel’s last ERP filing login to efilings, search for Proceeding 16A-0396E

• To access ERP Rules, on homepage select Rules and Statutes, go to Electric rules 3600-

3619. Or go to:

https://drive.google.com/file/d/0B8qvU2knU8BkcEJneE93YkNRQmM/view

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https://drive.google.com/file/d/0B8qvU2knU8BkcEJneE93YkNRQmM/view

Ron Lehr

Link Planning, Procurement

Reduce Bidders’ Risks Planning as prelude to bidding

Resolve as many issues as possible up front:

• Planning information: loads and resources, fuel cost projections, assumed resource costs, transmission information, modeling approaches and assumptions, define desired portfolio outcomes

• Draft Request for Proposals, bid requirements, evaluation criteria, timing, bidders’ Q & A process

• Draft Power Purchase Agreement, terms and conditions

Phase I: commission approves plan, authorizes RFP to acquire portfolio

Phase II: commission approves bid based portfolios for negotiations, PPAs

Goal: Lots of bids, low prices: competitive portfolio results

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Why modify the default IRP process?• Monopoly utilities have clear incentives for self-build and over-

procurement

• These same utilities may be risk-averse to shift rapidly to new resource mixes, even as third parties (including demand-side solutions) are eager to take on this risk in arms-length transactions

• Utilities also have monopsony power – single buyers can exercise their power to the detriment of new market entrants in the following ways:

• Control information and impose biases on procurement processes, which can discourage or disfavor otherwise competitive procurement opportunities

• Exercise arbitrary or unfair decision making, which may result in competitive projects being rejected or saddled with unreasonable costs or delays

• Impose terms and conditions that may result in sellers having to accept below-market prices or accept onerous contract requirements in order to remain active in the market

• https://energyinnovation.org/wp-content/uploads/2019/11/Monopsony-Brief_December-2019.pdf

• https://www.sciencedirect.com/science/article/abs/pii/S104061902030096819

Determine the need

Regulators should use the resource planning process to determine the technology-neutral procurement need.

Do not define in terms of:

• A specific, numeric capacity target

• Technology specification

Define in terms of:

• Load forecast

• Potential plant retirements

NEEDALL-

SOURCEADVANCE REVIEW

OWNER-SHIP

FAIRNESS

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All-Source Procurement

Regulators should require utilities to conduct competitive, all-source bidding processes, with robust bid evaluation.

• Not multiple, single-source procurements

• Open to all technologies

• Model selects the mix of capacity and energy to meet the utility’s need

NEEDALL-


OWNER-SHIP

FAIRNESS

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Advance Review

Regulators should conduct advance review and approval of procurement assumptions and terms.

• Most RFP processes currently provide for review after the RFP is complete

• Advance review avoids forcing an up-or-down decision using contested methods

• Advance review of:

• Assumptions

• Bid evaluation process

• Contract terms and conditions

NEEDALL-


OWNER-SHIP

FAIRNESS

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Model Bid Evaluation Process

• Further study costs of top performing optimized portfolios using a production cost model to run sensitivities as approved by regulators

• Transparently summarize evaluation results, include independent evaluator’s report

• After soliciting comments, regulators approve or modify resource portfolio

• Select an independent evaluator.

• Revise and publish RFP and model PPA documents with input from relevant parties and potential bidders

• Screen bids for minimum compliance

• Evaluate bids against need determination, using system planning models; create & compare multiple bid portfolios

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Utility Ownership Protections

Regulators should renew procedures to ensure that utility ownership is not at odds with competitive bidding.

• Regulators often allow utilities to participate in their own RFPs

• Utilities may also buy out winning bids

• Most resource practices have

• Utility code of conduct

• Independent evaluator

NEEDALL-


OWNER-SHIP

FAIRNESS

• More attention to complexity

• Multiple resources

• Different ownership models (e.g., implications of operating entity for tax purposes)

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Rules for fairness

Regulators should revisit rules for fairness, objectivity and efficiency.

• Fairness, objectivity and efficiency:

• Treatment of bidders

• Engagement of stakeholders

• Contract terms should be pre-approved in a public process

• Stakeholders can challenge assumptions and methods to ensure objectivity

• Utilities with leverage can pressure regulators to make “constructive” decisions to approve the utility’s preferred outcome

NEEDALL-


OWNER-SHIP

FAIRNESS

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Putting the pieces together: Xcel Colorado Procurement

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Emerging complementary solutions:

• Portfolios of supply- and demand-side resources can result in greater resource diversity, lower costs, lower risk, and market transformation.

• Greater transparency in utility modeling – allowing stakeholders to use the model and provide comments on utility assumptions can yield a more robust solution set.

• Reexamining utility incentives to build and own generation at the expense of demand-side resources, including performance-based ratemaking.

• How do new wholesale market rules for DER participation, and distribution planning impact the inclusion of load flexibility in utility planning and procurement for bulk system resources?

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QUESTIONS + CONTACT

John WilsonResource Insight (consultant to Southern Alliance for Clean Energy)[email protected]

Mike O’BoyleEnergy [email protected]

Ron LehrEnergy [email protected]

Mark DetskyDietze and Davis, [email protected]

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Dean Koujak

The Independent Evaluator’s Perspective on Independent Procurement Oversight

Presented by Dean Koujak

February 18, 202130

Dean KoujakDirector at Guidehouse, Inc.

GuidehouseEnergy, Sustainability and Infrastructure Office: New York, NYContact: 516-424-1720 [email protected]

Functional Expertise

17+ years of experience that

includes:• Competitive electricity markets

• Procurement: Generation,

Transmission, EE and DR

• Financial modelling

• Utility operations and strategic

planning

• Regulatory, legal, and expert

testimony

• Dean Koujak, a Director in Guidehouse's (formerly Navigant) Energy, Sustainability, and

Infrastructure Practice, provides advisory services to utilities and other stakeholders in the electric

power industry. With more than 17 years of industry experience, he has advised on several key

decisions in power procurement, large scale renewable development, renewable portfolio standards

compliance, Utility Strategy, transmission infrastructure planning, grid modernization, non-wires

solutions, RTO markets (NYISO/PJM/ISO-NE), energy efficiency program implementation, utility

contract negotiations, procurement standards and compliance, electric resource planning, M&A and

industry litigation.

• Over time, he has enabled electric utilities to successfully plan, evaluate, select, and contract over

6,000 MW of capacity from thermal, renewable, storage and demand response projects. He has

supported and been engaged on competitive power procurement and electric market matters in the

• U.S. and Canada. Dean is a qualified procurement monitor and has served in a variety of capacities

in this regard including as an independent evaluator, independent monitor, and independent

observer.

• Dean received a BS in Engineering Management from NYIT, an MBA from SUNY-Stony Brook, and

• a JD from Hofstra University.

©2021 Guidehouse Inc. All Rights Reserved

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mailto:[email protected]

• Independent Oversight have been required in certain procurements dating back to 1980s; and has had wider

spread adoption as a consequence of Boston Edison Co. ex rel. Edgar Elec. Energy Co.

• Most often, independent parties are required to be involved where there is potential for an affiliate transaction

• Where there is the possibility of an affiliate transaction, the procurements must pass the following standards:

– Transparency: The procurement should be open to competition and fair

– Definition: Procurements should be clearly defined as to what is sought, the specifications desired, and

evaluation criteria

– Evaluation: Standardized, well-developed process that is consistently and even-handedly applied to all bids

relying on the material presented in the bid

– Oversight: Overseeing adherence to the above standards, an independent party is involved to ensure that

these standards are met


BackgroundWhen independent oversight is needed in power procurement

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• Independent Administrators – Scope

– Oversee the Utility’s development of the RFP, evaluation

criteria and related documentation

• – Key document: Evaluation process guide and

• documentation

– Manage all communications with bidders

– Receive, directly, proposals and associated

documentation from bidders

– Evaluate, independently, the proposals on qualitative

and quantitative criteria

– Receive “blind” input from the Utility throughout the

process

– Independently select bidders based on the process

• outlined in the evaluation process manual

– Information regarding the successful bidders are

provided to the Utility to proceed to contract negotiations


• Independent Monitor/Observer – Scope

– Oversee the Utility’s development of the RFP, evaluation

criteria and related documentation; key considerations:

– Ensure structure and design of the RFP is open and fair

– Ensure the evaluation rubric has been fully developed and

• well defined prior to bid receipt

– Review proposals received, alongside the Utility

– Monitor communications between the Utility and Bidders

– Review qualitative scores with Utility SMEs to ensure

• consistency and fairness

– Review quantitative evaluation results and any

exceptions noted

– Request additional actions as necessary to ensure

consistent scoring

– Issue comprehensive report on the overall conduct and

fairness of the RFP process

Roles of Independent OversightTwo main approaches

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Optically more transparent

Satisfies regulatory criteria

May not be suitable for complex RFPs/evaluations

May lack subject matter expertise at the local level

The process is more “mechanical” and has less analytical rigor

Process does not allow for contract modifications; not compatible for large-scale solicitations where contract exceptions may be required

Satisfies regulatory criteria

Focuses the third-party oversight on areas of concern and ensuring consistency

Leverages Utility SMEs

Allows for complex evaluation of resourceoptions with analytical rigor

Utility involvement in process has the appearance of being not as transparent as the Independent Administrator


Independent Oversight Roles ComparedPros and Cons of the two main approaches to oversight

Independent Administrator Approach Independent Monitor Approach

Pros Cons Pros Cons

IndependentAdministrators may be used where the product is more

focused and defined (commodity-like); may not be suitable for more

complex evaluation processes or for resources that are critical.

Independent Monitors allow for a Utility-led process whereby the

expertise and capabilities of the Utility are leveraged with the

Independent Monitor focused on ensuring fairness and consistency,

providing feedback when necessary to ensure compliance.

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RFP

Development

and Review

RFP Issued Q&A

Period

Proposal

Receipt

Threshold /

Eligibility

Evaluation

Economic

Evaluation

Qualitative

Evaluation

Aggregate

Evaluation

Scores

Establish

Shortlist

Top

Selected

Projects

Conduct

Interviews

Receive

BAFOs

Develop

Portfolios

Detailed Cost

Modeling

Final

Selection

Contract

Negotiations

Contract

Execution

Start

End

Remove Bids

Typical RFP ProcessCertain tasks are challenging for a third-party to conduct

Typical Procurement Process Legend

- Task may be managed by a Third Party

- Task is difficult to execute independently; requires Utility involvement

- Task is very difficult to execute without Utility involvement.

End of IE role


The qualitative evaluation includes a review of items

such as:

• Site control and easements

• Environmental impacts

• Permitting

• Interconnection

• Contract exceptions

• Community support and engagement

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• Terms and definition of the role differs significantly across jurisdictions.

• The Independent Administrator can work for certain types of solicitations:

– Narrowly tailored to specific products or technologies

– Clear thresholds without many local constraints

– Price is the predominant factor for consideration

– Smaller scale or non-critical assets

• Where the resources are more complex in nature, meeting a more critical resource need or a larger-scale

resource, additional analytical rigor and regional knowledge is advantageous to thoroughly evaluate

proposals.

– Leveraging the Utility’s knowledge and capabilities to undertake the evaluation is advantageous.

• To ensure a fair, consistent and thorough evaluation, focusing third party oversight on ensuring

consistency across the evaluation process has resulted in a better overall quality outcome while

leveraging Utility’s expertise and insights, particularly on the regional level.


Perspectives on approaches to oversightContext varies significantly across jurisdictions

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Contact

©2021 Guidehouse Inc. All rights reserved. This content is for

general information purposes only, and should not be used as

a substitute for consultation with professional advisors.

D. Dean Koujak

Director

[email protected]

(516) 424-1720

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Question Session

Led by Michael O’Boyle (Energy Innovations)

Discussion

Discussion

• When is it necessary to have an IA/IE

◦ All solicitations

◦ When the PPAs are evaluated against BTAs/Company-

owned/Affiliates

◦ Does Staff’s thorough review resolve some of the concern

◦ Required when solicitation is utilized for avoided cost

• All source concerns

◦ How to compare different types of resources on equal footing

◦ Is all source “light” still all source

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Next Steps

Next Meeting to be held in March

Send any comments to [email protected] by March 3


Next Steps

◦ Presentations on value added criteria / bonus scoring

◦ FERC Order 872

• Order in U-20852 January 21, 2021

“The MI Power Grid competitive procurement workgroup shall continue

its efforts to develop a framework for competitive solicitations in

compliance with the standards set out in Qualifying Facility Rates and

Requirements Implementation Issues Under the Public Utility Regulatory

Policies Act of 1978, 172 FERC ¶ 61,041 (2020) and Qualifying Facility

Rates and Requirements Implementation Issues Under the Public Utility

Regulatory Policies Act of 1978, 173 FERC ¶ 61,158 (2020).”

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Adjourn

Documents

Jesse Harlow - Michigan